28 November 2001 External T.I. 2001-0097155 - Amendments to 104(6)(b)(iii)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Explanations regarding the example provided in Clause 78 of the Explanatory Notes on subsection 106(4) accompanying the Notice of Ways and Means Motion dated March 16, 2001.

Position: Subparagraph 104(6)(b)(iii) was amended by the Notice of Ways and Means Motion dated March 16, 2001 in order to disallow the deduction by a trust of the portion of its income accrued to the end of the deemed disposition day caused by the spouse's death but payable only after the death.

Reasons: Clause 78 of the Explanatory Notes accompanying the Notice of Ways and Means Motion dated March 16, 2001.

XXXXXXXXXX 							2001-009715
								Éric Allard-Pouliot
November 28, 2001

Dear XXXXXXXXXX:

Re: Technical Interpretation Request : Amendments to Subparagraph 104(6)(b)(iii)

This is in reply to your letter of August 3, 2001, in which you requested our opinion regarding the above-noted subject. More particularly, you requested our opinion as to the rationale of the example provided in Clause 78 of the Explanatory Notes on subsection 106(4) of the Income Tax Act (the "Act") which accompanied the Notice of Ways and Means Motion dated March 16, 2001 (the "Notes").

The Notes provides that subparagraph 104(6)(b)(iii) of the Act will be amended in order to prevent certain trusts, including post-1971 spousal or common-law partner trusts, from deducting an amount under subsection 104(6) of the Act in respect of income accrued up to the end of the deemed disposition day caused by the death of the spouse, common-law partner or other relevant beneficiary.

In the example provided under Clause 78 of the Notes, the trust's total income for the year (determined without reference to any deemed disposition under subsection 104(4) and any deduction under subsection 104(6)) is $100, of which $20 is payable to the spouse prior to the spouse's death and of which the remaining $80 is payable to the surviving beneficiaries. It is also provided in the example that $40 of the $100 income of the trust accrued before the spouse's death.

In accordance with subsection 104(6) of the Act, the total amount deductible by the trust cannot exceed the amount by which the amount determined under subparagraph 104(6)(b)(i) exceeds the amount determined under subparagraph 104(6)(b)(iii). The amount determined under subparagraph 104(6)(b)(i) is the trust's income for the year that became payable in the year to beneficiaries, i.e. $100. As for the amount determined in subparagraph 104(6)(b)(iii), it is the amount, if any, by which the amount determined under clause 104(6)(b)(iii)(A) exceeds the total of the amounts determined under clauses 104(6)(b)(iii)(B) and (C). Clause 104(6)(b)(iii)(A) refers to the maximum amount that would be deductible under subsection 104(6) in computing the trust's income for the year if this subsection were read without reference to subparagraph 104(6)(b)(iii), i.e. $100 in the example. Clause 104(6)(b)(iii)(B) refers to the amount that, but for subsections 12(10.2), 104(6), 104(12) and 107(4), would be the income of the trust that became payable in the year to the spouse, common-law partner or other relevant beneficiary, i.e. $20 in the example. As for clause 104(6)(b)(iii)(C), it refers to the amount that would be the trust's income for the year if that income were computed without reference to subsections 104(6) and (12) and as if the year began immediately after the end of the day, i.e. $60 in the example (this amount represents the income of the trust that accrued after the spouse's death). As a result, in the example provided in the Notes the amount determined under subparagraph 104(6)(b)(iii) is $20, i.e. [$100 - ($20 + $60)]. Consequently, the trust's maximum deduction for the year is $80, i.e. $100 - $20.

As shown in this example, the amendments to subparagraph 104(6)(b)(iii) of the Act result in the trust not being allowed a deduction in respect of the portion of its income accrued to the end of the deemed disposition day caused by the spouse's death but payable only after the death. In other words, no deduction is allowed for the portion of the $40 of income accrued before the spouse's death that was not payable to the spouse prior to the spouse's death (in the example it is provided that $20 out of the trust's total income is payable to the spouse prior to the spouse's death; therefore, the portion of the $40 of income accrued before the spouse's death that was not payable to the spouse prior to the spouse's death is $20).

The above comments are an expression of opinion only and are not binding on the Canada Customs and Revenue Agency, as explained in paragraph 22 of Information Circular 70-6R4. We trust that the foregoing will be of assistance to you.

Yours truly,

Alain Godin, Manager
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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